Taco Bell Sales Help Lift Profit at Parent Yum Brands

Yum Brands Inc.YUM-0.30%'s profit jumped 23% as its Taco Bell, Pizza Hut and KFC chains continued to improve in the U.S., though Yum's growth in China was held back by the economy.

The company's shares rose 3.9% after hours to $68.61 after the company beat Wall Street's estimates and raised its expectations for the year to 13% earnings-per-share growth, from the previous 12% view.

After struggling domestically last year, Yum is recently showing signs of a comeback in the oversaturated, depressed U.S. marketplace. Taco Bell's new Doritos Locos Tacos, with a nacho cheese Doritos taco shell, took off earlier this year, and now it is adding "cool ranch" and other Doritos-flavored shells.

The chain is building on that strength with its new "Cantina Bell" menu, which launched nationally in early July and focuses on fresher and higher-quality ingredients.

Some investors, namely Greenlight Capital's David Einhorn, speculate that the more premium menu is taking business from Chipotle Mexican Grill Inc.,CMG-0.26% whose burritos and burrito bowls appear to have served as the inspiration for Cantina Bell.

Taco Bell's U.S. same-store sales rose 7% in the latest quarter, compared with a 6% increase at Pizza Hut and a 4% boost at KFC.

Yum's China business, which is primarily comprised of KFC and Pizza Hut Casual Dining, has been crucial for the company, often contributing half of its total profit. The segment posted 6% higher same-store sales, continuing a recent trend of slower growth in China, which in past quarters reported same-store sales growth of about 20%. Still, operating profit before currency changes jumped 22%.

Yum continues to focus most of its energy on China and other emerging markets, where its chains are booming in urban areas. Many restaurants are looking to developing countries as the U.S. restaurant market is saturated and it is difficult to add new units there. Yum has about 18,000 units in the U.S., compared with roughly 4,950 in China and 495 in India.

In the recent quarter, 86% of Yum's new restaurant development was in emerging markets.

The company was able to increase its profitability world-wide by 1.9 percentage points to 18.9% for the quarter.

Going forward, Yum forecast a charge of $25 million to $75 million in its fourth quarter, stemming from its offer for certain former employees to voluntarily take an early payout of their pension benefits. The company said the payments should reduce the continuing volatility and administration expense related to its U.S. pension obligation.

Yum posted a third-quarter profit of $471 million, or $1 a share, up from $383 million, or 80 cents a share, a year earlier. Excluding refranchising impacts and other items, earnings rose to 99 cents from 83 cents.

Revenue increased 9% to $3.57 billion.

Analysts polled by Thomson Reuters expected a profit of 97 cents a share on revenue of $3.65 billion.

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